Compliance is everyone’s responsibility: S Ramanathan

Compliance is increasingly becoming one of the most important pillars on which the modern day enterprise rests. And a chief compliance officer who helms the role is at the centre of it all.Vartika Rawat | ETCFO | Updated: July 20, 2018, 13:17 IST

Compliance is a critical function in these days of multiple and often global regulation. Here in an interview with ETCFO’s Vartika Rawat, the Chief Compliance Officer, S. Ramanathan for the MUFG Bank shares the details of what makes the compliance function such a necessity. Ramanathan has around two decades of experience in the legal and compliance arena. Edited excerpts:

S Ramanathan: A CCO is primarily entrusted with the responsibility for overseeing and managing compliance risks within an organization. It (the role) also involves ensuring that the bank and its employees are complying with regulatory requirements and with internal policies and procedures.

As a financial institution, MUFG is well aware of its obligations to strictly comply with corporate ethics and to abstain from business conduct that goes against its principles.

I have been a CCO for the past decade or so and a significant part of my time is spent with various stakeholders in assessment and management of compliance risks.

Q: How has the role evolved from earlier times? How has the revised Companies Act changed the role?

S Ramanathan: Even a decade ago, the Compliance Officer role was considered a middle-management position, often within the Legal or other such control function, where someone was additionally given some more responsibilities.Today, the compliance function is an independent vertical with often has a direct reporting line to the Audit Committee or Board of Directors, including a dotted line to the CEO.

The CCO position was created and energiszed by past economic crises. The deeper the economic downturn, the more the regulation pendulum would swing to prevent catastrophic effects to the financial markets and in general, economic wellbeing of society.

Given the flurry of regulatory actions, on top of the expertise to review and evaluate overall compliance within departments, the CCO position & compliance function evolved.

Section 205 of the Indian Companies Act, 2013 has now, defined the role of the Company Secretary of a company, to include the obligation to report to the board on the compliance made under the Act and other laws applicable to the company.

In addition, it also specifies that the Company Secretary also be appointed as the Compliance Officer, to ensure that the provisions of the Listing Agreement are complied with, in case the securities of the company are listed on any Indian Stock Exchanges.

The primary role of the CCO is therefore to set-up an effective compliance program that helps in the protection, detection, and response to evolving compliance risks.S Ramanathan

Q: What power does the CCO have and in what kind of organisations?

S Ramanathan: The CCO is a key management functionary and scope and role depends on the size and complexity of the business model of a financial institution.

One can find CCO in all forms of regulated organisations such as banking and finance, pharmaceuticals, utilities etc. Also, with the implementation of the new anti-corruption, environmental protection and data privacy laws across the world, CCO positions are being created in organisations such as media, telecommunications, manufacturing etc.

Depending on its distribution network, size, complexity of the business operations, product mix etc., financial institutions decide on the organizational structure and composition of its compliance unit.The structure is drawn up with a view to properly identify and address compliance risks, guide business on the regulatory framework and have an ability to identify the viability of the compliance program.

One of the cardinal principles, adopted is to avoid all potential conflicts of interest between compliance staff members and the organization.

The CCO is a very important position within the organisation, reporting in to the CEO and the Regional Head of Compliance. Hence, you may say, the CCO is part of the senior management of any organisation.

Q: How important is corporate governance in your role? What is corporate governance from a lens of a CCO?

S Ramanathan: Compliance function is one of the key elements of a bank’s corporate governance structure. The CCO complements the CEO and the board in implementation of corporate governance practices across the rank and file.

Given the amount of regulatory attention and increased public scrutiny, boards are now involved in actively having an interest and demanding oversight of compliance programs. Organisations now have compliance committees at the board level.

Q: What are the typical challenges and opportunities while working as a CCO in a country like India?

S Ramanathan: India is now taking its place on the world stage as a major economy. Not only do organisations have to comply with domestic rules and regulations, but they also have to abide by global or cross border initiatives, such as FATCA, Dodd Frank, CRS, and IFRS etc.

The primary role of the CCO is therefore to set-up an effective compliance program that helps in the protection, detection, and response to evolving compliance risks.A few of the common challenges are: improper role definition, not finding enough support within the organisation, lack of resources or accurate data and being isolated from decision making.

Thanks to the strategic position a CCO occupies, s/he has the ability to observe and grasp the finer nuances of the business and can they can aspire for business or executive positions. Compensation is also a major draw, with top CCOs now commanding top dollar.

The CCO position was created and energiszed by past economic crises. The deeper the economic downturn, the more the regulation pendulum would swing to prevent catastrophic effects to the financial markets and in general, economic well-being of society.S Ramanathan

Q: What are the educational qualification and the kind of skill set required to be a CCO in this day and age?

S Ramanathan: A chief compliance officer plays an important role in assisting the CEO and the senior management to establish a strong compliance culture within the organisation. Towards this end, it is expected that the CCO establishes a robust and dynamic compliance program, which incorporates procedures, trainings, testing and investigations.

One needs to have strong analytical abilities to monitor the constantly evolving business landscape and have good communication skills to engage with stakeholders. Leadership skills, ethics interpretation, strategic business acumen etc. are crucial too.

Bachelor’s or Post Graduate degrees are normally a minimum requirement with prior experience in governance, legal or audit work experience in whichever industry he intends to serve in his capacity. To meet the additional requirements at senior levels. Employers may additionally look for advanced degrees in areas such as law, audit, forensics or professional qualifications such as CA, CS, MBA etc.

Q: Can you share any anecdote of your typical work experience?

S Ramanathan: In my early days as a compliance officer, once while conducting an Ethics and Code of Conduct workshop, not one of the most exciting topics, I observed that one of the staff members was not particularly interested in the discussions. On questioning, he nonchalantly answered that the way he understood it was that compliance was the job of the compliance department.

Hence, to this date, I typically commence all my presentations with a line that says “Compliance is everyone’s responsibility”.

Warren Buffett had once said, “Everyone must be his own compliance officer. That means everything you do can be put on the front page of the newspaper, and there will be nothing that cannot stand up to scrutiny.”